The United move likely will provide impetus for pension-insurance overhaul legislation that will be introduced in Congress. The bills are expected to include many provisions sought by the White House, including raising company premiums to put the PBGC on firmer financial footing, imposing a seven-year deadline on companies to fully fund their pension plans and imposing a new method for more precisely measuring assets and liabilities.

The PBGC was created in 1974 to guarantee corporate pension plans and pay benefits to workers whose employee-sponsored plans fail. To finance its activities, the PBGC collects premiums -- currently about $1 billion a year -- from employers with defined-benefit plans. It also receives funds from pension plans that it takes over and earns returns on its investments. So far, the agency hasn't had to use any taxpayer funds, but some analysts warn a bailout funded by taxpayers could be on the horizon if the agency's deficit keeps growing.

Delta and Northwest Airlines are backing a bill introduced recently in Congress that would allow them to stretch out payments on their pension shortfalls for 25 years -- if they freeze the plans in question and ensure that the deficit wouldn't grow any larger. The bill has run into resistance from lawmakers reluctant to give airlines a special break.

Lawmakers fear other companies in distressed industries, like the auto-parts makers, could seek to shed their pension plans while under bankruptcy-court protection. Some companies, like US Airways Group Inc., have done so already.

The court's approval will help UAL sidestep more than $3 billion in pension contributions over the next five years, while leading to retirement benefit cuts for many of its workers and retirees. The agreement requires the PBGC to make a final determination soon that the plans meet the requirements to be taken over. It also requires UAL to give the pension insurer as much as $1.5 billion in notes and convertible stock in the reorganized carrier to settle its claims. The size of the PBGC's potential stake in UAL isn't known because the airline hasn't finalized its plan of reorganization, but the PBGC has said that the settlement agreement leaves it in a better financial position than other creditors.

Judge Wedoff said the settlement would save UAL from the costs and distraction of litigation and would give the airline more "certainty about its future."

In a statement, United said the settlement agreement "is a crucial step forward for the future of United, as it strengthens the financial platform this company needs to attract exit financing and compete effectively." At the same time, the company said, "We clearly recognize that the court's decision is difficult for our retirees and our employees, who have been doing extraordinary work throughout this restructuring process."

Jeffrey Cohen, a lawyer for the PBGC, said in court that his agency "has concluded the agreement is in the best interests of all the PBGC constituents," adding that because the plan termination will hurt many United employees, "we don't do it lightly." The agreement "clears a path to the [bankruptcy] exit door" for United, he said.

Judge Wedoff said that because the PBGC initiated the pension termination, the union's labor contracts with UAL wouldn't be breached. Under retirement law, if the PBGC initiates termination, that takes precedence over contractual obligations, the judge said.

Richard Turk, a spokesman for the Aircraft Mechanics Fraternal Association local in San Francisco, which represents many United mechanics, said his members are "beyond angry. We're just fed up."

He said the union still has contractual rights to the retirement benefits in its current contract, but UAL hopes today to persuade Judge Wedoff to void that contract so the airline can impose lower pay and benefit terms on the workers.

"Even if the money shifts to the PBGC, nobody tomorrow is going to be paid less," said Mr. Turk. "They still have to deal with our contract."

Joe Tiberi, a spokesman for the International Association of Machinists union, said the group plans to appeal yesterday's pension ruling and is rescheduling negotiations with United over other contract issues that will be coming into court today as part of the hearing to void the existing contract. The machinist union members at United, primarily ramp workers and customer-service agents, completed voting earlier this week on a strike-authorization ballot, results of which will be announced today.

The PBGC, according to terms of the settlement, would guarantee payments to plan participants totaling $6.6 billion, meaning workers and retirees would be shorted by $3.2 billion in the form of benefit reductions. The agency's maximum guaranteed benefit is set by law and adjusted yearly; generally, lower-paid workers have a greater chance of receiving all of their pension. This year the maximum paid to most retirees is $45,614 for a 65-year-old person, meaning many United workers -- particularly pilots, who must by law retire at age 60 -- would receive less than they expected.

The likely jettisoning of the costly defined-benefit pension plans is central to UAL's business strategy as it works to attract $2 billion to $2.5 billion in debt financing to step out of court protection this fall. Prospective lenders have told the airline in no uncertain terms that they aren't interested in raising money if the airline is going to pay it all out in pension contributions in the next few years.

UAL has been suggesting since last summer that it couldn't come out of Chapter 11 with the big pension liabilities. In a second round of employee concessions, its pilots agreed to let their pension plan be shifted to the government in exchange for $550 million in convertible notes in the reorganized UAL. But retired pilots, who stand to take a huge hit between what they were getting from the airline and what they will receive in payments from the PBGC, continued to object yesterday in court.

The Chicago courtroom was so crowded with unhappy United employees and retirees that Judge Wedoff sent the overflow to a second courtroom where people could listen to the proceedings. When Rob Clayman, the attendant union attorney, broke into tears in a plea to save the retirements of the cabin attendants, both courtrooms erupted in applause and cheers.

Write to Susan Carey at susan.carey@wsj.com¹